Volatility, Diversification and Contagion

51 Pages Posted: 5 Apr 2018

See all articles by Enrique Sentana

Enrique Sentana

Centro de Estudios Monetarios y Financieros (CEMFI); Financial Markets Group; Centre for Economic Policy Research (CEPR)

Date Written: March 2018


In this paper I describe in detail the concepts of volatility, diversification and contagion, three basic keys to understand the seemingly whimsical behaviour of financial markets. The presentation is deliberately non-technical and largely self-contained, with most required concepts defined along the way. Nevertheless, the analysis is mostly empirically oriented, with an emphasis on the methods that have been proposed to measure those concepts and a discussion of the stylised facts that the resulting measures imply. I also use those measures to study the effects of the financial crisis of 2007-2008 and the euro sovereign debt crisis of 2010-2012 on Spain.

Keywords: Correlation, Dependence, Stock Markets, Volatility derivatives

JEL Classification: C58, G11, G32

Suggested Citation

Sentana, Enrique, Volatility, Diversification and Contagion (March 2018). CEPR Discussion Paper No. DP12824. Available at SSRN: https://ssrn.com/abstract=3155160

Enrique Sentana (Contact Author)

Centro de Estudios Monetarios y Financieros (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
+34 91 429 0551 (Phone)
+34 91 429 1056 (Fax)

HOME PAGE: http://www.cemfi.es/~sentana/

Financial Markets Group

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London School of Economics & Political Science (LSE)
London WC2A 2AE
United Kingdom
+44 20 7955 7002 (Phone)
+44 20 7852 3580 (Fax)

Centre for Economic Policy Research (CEPR)

United Kingdom

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